With so many options for UK pensions, it can be difficult to know what to do to achieve a financially secure retirement. The ongoing uncertainty surrounding Brexit and political volatility in the UK also raises questions about how long we can expect today’s opportunities for expatriates to last.  

Any financial transaction brings a degree of risk, but as pensions are often especially valuable and critical in providing a comfortable retirement, making the wrong decision here can be disastrous. This is therefore an area where quality, expert advice is vital.

These six tips can help you avoid costly mistakes and establish the right pensions approach for you.

1. Check your pension adviser is regulated by the UK Financial Conduct Authority (FCA)

Regulated financial companies must meet certain standards and act in the best interests of their clients. While taking regulated advice is compulsory for people looking to transfer ‘final-salary’ pension benefits worth £30,000+ a year, the FCA strongly recommends it for anyone considering their pension options. A simple online search of a provider’s full name plus ‘FCA’ should reveal more about their relationship with the regulator and link to their record in the Financial Services Register.

2. Consider all the available options for your pensions

Many expatriates transfer UK pension funds to a Qualifying Recognised Overseas Pension Scheme (QROPS) to unlock benefits such as flexibility to withdraw euros or sterling and more freedom to pass benefits to heirs other than your spouse. However, a QROPS will not suit everyone and is not always the most tax-efficient solution. Pension funds can potentially be restructured in arrangements that provide better tax benefits for your country of residence, so make sure you explore the alternative options.

3. Don’t overlook cross-border tax issues

UK-based pension advisers are unlikely to have in-depth understanding of the local tax landscape nor the cross-border expertise required to make the most of the opportunities available. This can result in a much higher tax bill than necessary for you and possibly for your heirs.

A locally-based, UK-regulated adviser is best placed to establish the most tax-efficient approach for your particular circumstances and goals.

UK pensions in Spain

The Spanish income tax treatment of pensions differs to the UK and is highly complex, with rates varying regionally between 19% and 48%. While UK-based advisers may have some understanding of Spanish taxation, they are unlikely to have the full expertise to navigate issues such as Spanish succession, wealth and income tax mitigation in the context of your overall situation.

UK pensions in France

The French tax treatment of pensions is complex and wholly different to the UK’s. While UK-based pension advisers may have some understanding of French taxation, they are unlikely to have the full expertise to consider issues such as French succession tax and income tax mitigation in the context of your overall situation. This could mean the difference between paying as little as 7.5% tax or as much as 45% income tax on your pensions.

UK pensions in Portugal

The Portuguese tax treatment of pensions differs to the UK and can be highly beneficial. For example, if you are not yet resident in Portugal, you could enjoy tax-exempt pension income through the non-habitual resident (NHR) regime for the first ten years if you meet certain conditions. For some expatriates, it is more beneficial to re-invest UK pension funds into a tax-efficient Portuguese-compliant life assurance bond, for instance, but there is no one-size-fits-all solution.

UK pensions in Cyprus

The tax treatment of pensions in Cyprus differs to the UK and can be highly beneficial. For example, it is possible to take portions of your UK pension tax-free. Beware, however, that if you take the entire fund as a lump sum, 75% remains taxable in the UK. Conversely, Cyprus residents with a QROPS located in a jurisdiction such as Malta (which has a special tax agreement with Cyprus) can receive tax-free pension funds if it is taken in one lump sum only.

4. Beware of pension scams and unregulated investments

Be extremely cautious of advice from a company that has cold-called you, and never sign anything under pressure. Be especially wary of claims of unusually high or guaranteed returns, and opportunities to access your pension before the age of 55. Once you transfer your pension, it is too late; you could end up losing some or even all of your pension funds, and face a large UK tax bill as well as penalty fees.

Also, take note that many companies offering pension services are unregulated. Whether they aim to defraud you or not, these are unprotected investments that risk losing your money with no opportunity for compensation if things go wrong.

Protect your pension benefits by checking your provider’s credentials, including their understanding of local taxation and its interaction with UK rules.

5. Research other peoples’ experience

Even amongst regulated providers, check for quality. Testimonials, particularly word-of-mouth recommendations from people you trust, can provide reassurance and indicate that your provider is meeting the needs and expectations of their clients. Look for consumer reviews, ask around your local community and follow up references where possible. Be mindful, however, that other peoples’ situations might be quite different to yours – what works for them may not necessarily work for you.

6. Look at the whole picture

Pensions should form just part of your overall financial plan. Your adviser should look at your pensions in the context of your unique circumstances, risk appetite and wider situation – including residency, your other assets, tax and estate planning – to help secure the best outcome for you and your family.

Deciding what to do with your pension could be one of the most important financial decisions you make. While you should take the time to get it right, keep the Brexit countdown in mind. With many predicting that the UK could introduce tax penalties on overseas transfers and limit how expatriates in the EU can access their UK pensions post-Brexit, now is the time to review how you can best secure a prosperous retirement, wherever you live.

Contact us for a pensions planning review